Canadian defined benefit (DB) pensions gained a median 3.0% in the third quarter of 2020, building on the “liquidity-driven” momentum in the global markets that began at the end of the first quarter, according to a report on pension plans published by RBC Investor & Treasury Services on Thursday.
For the year to date ended Sept. 30, Canadian DB pension plans were up a median 5.2%. In the second quarter, Canadian DB plans enjoyed a median gain of 9.6%, following a first quarter that saw DB plans drop a median -7.1%.
DB plans could face potential headwinds in the fourth quarter related to the resurgence of Covid-19 and uncertainty associated with both the results of the U.S. presidential election next week and the timing of possible governments support programs, the report said.
“We can expect an increase in market volatility – as these factors have the potential to discourage global markets and lower investors’ appetites for taking on risk,” said David Linds, managing director and head of asset servicing, Canada at RBC Investor & Treasury Services.
Canadian equities advanced in the third quarter, with the TSX Composite index increasing 4.7%. Nine of the ten sectors in the benchmark ended the quarter in positive territory, lead by industrials, which gained 13.6%. DB pension plans’ Canadian equities holdings returned a median of 5.2% for the quarter, outperforming the TSX Composite by 0.5 per cent.
DB pension plans’ foreign equities holdings returned a median 5.8 per cent, just 0.1% shy of the 5.9% return posted in the MSCI World Index.
The Canadian fixed income asset class return among DB plans was relatively flat for the quarter, returning 0.7 per cent, compared to 0.4% in the FTSE Canada Universe bond index. Year-to-date, Canadian fixed income was the best performing asset class for Canadian DB plans, with a median return of 10.3%.